The typical check processing procedure in use today is a long and tedious process, which requires one or more processing days and multiple repetitive steps. The procedure includes many opportunities for errors to be introduced.
The typical check processing procedure is shown in FIG. 1 and begins, for example, at a bank teller window. The teller is given one or more checks for deposit by the customer, each check having a specific dollar amount or check amount. The teller totals the check amounts and credits the customer's account with the amount, as shown in block 100. At the end of the day, the total of all checks received that day by each teller may be totaled. The teller totals are combined to form a bank total.
The bank first encodes the check amounts on the checks, as shown in block 102. The encoding process is performed manually, with an operator physically handling each check, viewing the amount, and then keying it on the face of the check. The check amount is then encoded in magnetic ink on the face of the check in a predetermined field or location, such as the bottom right of the check in alignment with the MICR line. The encoding speed per operator is slow, typically 1,200 to 1,400 checks per hour. Because this processing step relies heavily on the human operator, who must process a large quantity of documents in a short time, it is prone to errors. The check amount may be misread due to poor penmanship and a number of other reasons or the amounts may be entered incorrectly. The encoded checks are then tallied and compared with the total on the deposit ticket. This process is commonly termed "proofing."
The encoded checks are then shipped to a central processing location for the "capturing" step, as shown in block 104. High speed reader/sorters process the checks by reading and sorting the checks according to information printed on the MICR (magnetic ink character recognition) line located at the bottom of the check. The MICR information on the check includes the bank number, account number, check serial number, in addition to the encoded check amount. The checks are read and sorted by bank or some other designation according to the transit and routing information also present in the MICR line. Approximately 1 to 1.5% of checks are rejected because the MICR line information is not readable. The rejected checks are manually handled and corrected. A balance of credits and debits is then computed. The sorted checks and a cash letter listing each check and their amounts are then sent to the institutions owning the accounts that the checks are drawn on in a collection and transit process.
The transit process delivers the checks to the bank having the accounts the checks are drawn on, at which place another capturing process commonly termed "inclearing" is performed, as shown in block 106. Inclearing ensures that the checks are actually drawing on that bank's accounts, the amounts are encoded on the checks, the correct settlement amount is given to the other banks, and that the correct amount is finally settled or posted out of the customer's account, as shown in block 108. The checks may then be returned to the checking account owner, as shown in block 110.
It may be seen from the foregoing that the traditional check processing procedure is a time-consuming and tedious process. Each time the check is handled or encoded, an opportunity for error is introduced. As a result, check processing is a very costly procedure for banks and businesses.
Further, banking institutions and businesses may engage in cash management practices that take advantage of the float period used to process the checks. These practices maximize their returns by keeping the money in high return investments until the very last moment when they must settle or fund their accounts for collection. When substantial money is involved, the benefits can be significant. Additionally, depending on the amount of funds available, decisions may be made to borrow funds overnight to maintain certain capital ratios with the Federal Reserve Bank. However, the information of what funds are available from deposited checks often is not available until late in the day or the next day after the checks are processed. It becomes desirable to plan cash management positions as early as possible to maximize the benefits.